Quadriga was a ponzi scheme, says Ontario securities regulator

Today the Ontario Securities Commision (OSC) released a report on Quadriga, the now bankrupt cryptocurrency exchange, highlighting the firm's fraudulent operations. The review, conducted in order to determine how the platform was run, what caused its collapse, and where the money went, found that Quadriga operated like a ponzi scheme. Although it has been widely speculated that the majority of investor losses resulted from Cotten’s death and lost keys, the OSC found that most of the losses actually resulted from Cotten’s fraudulent conduct.

“The bulk of the asset shortfall—approximately $115 million—arose from Cotten's fraudulent trading on the Quadriga platform. Cotten opened Quadriga accounts under aliases and credited himself with fictitious currency and crypto asset balances which he traded with unsuspecting Quadriga clients. He sustained real losses when the price of crypto assets changed, thereby creating a shortfall in assets to satisfy client withdrawals. Cotten covered this shortfall with other clients’ deposits. In effect, this meant that Quadriga operated like a Ponzi scheme.”

Cotten not only sustained losses on his own platform, but also misappropriated clients' cryptocurrencies. The OSC found evidence that Cotten regularly moved clients’ crypto off the Quadriga platform and into accounts he had opened on other crypto trading platforms.

Why it matters:

• There is a common saying in this industry that goes “not your keys, not your crypto”. The Quadriga case is one of the clearest examples of the potential risk of holding your crypto on an untrustworthy exchange.
• The report confirms previous allegations made Ernst and Young (EY), who was tasked with recovering customer funds following the exchange’s February 2019 collapse.